Solutions for College Sticker Shock
Imagine your reaction to the following scene: You return home from work one evening to discover your teenage daughter excitedly waving a letter. When you calm her down, she informs you she has just been accepted to the incoming freshman class of a highly regarded private college. After she tells you that the tuition plus room-and-board is $40,000 a year, you wonder, “So, what exactly is the good news?”
Many parents may be in for “sticker shock” when they have to confront the cost of a four-year college degree. Graduate education often carries an even more staggering price tag. While college tuition growth has slowed in recent years, increases in the costs of higher education continue to exceed the rate of inflation. Without knowing what type of job market your college grad may face several years down the road, you may be in for some serious financial soul searching.
Although parents and students can avail themselves of a wide variety of scholarship programs, loan packages, and work-study arrangements, it might be worthwhile to look at more creative ways to hold down college costs. While not applicable to every situation, ask yourself whether either of the following ideas might benefit your family:
Cost Cutter #1—The Student Condo: Under this arrangement, Mom and Dad purchase a condominium for their child. Although a student condo is not generally purchased for its tax advantages, parents can expect it may provide their child with quieter-than-average housing, free from many of the distractions of college dorm life. However, you may want to check with your tax professional about the possibility of deducting the mortgage interest.
If condominium prices are low in the area of your child’s college, and room-and-board charges are high, this option may not be as farfetched as it first seems. The student condo can be an interesting solution for those who hold an optimistic view of real estate values a few years down the road, especially if more than one child can use the condo while attending a school in the same area.
Cost Cutter #2—The Student “Condorm”: The “condorm” allows Mom and Dad to hire their child as the student-manager of a property they purchase for both its tax and non-tax advantages. The idea is to have the student find tenants, collect rents, and manage the property. Mom and Dad can even pay a salary to their student for services rendered as resident property manager. The salary could, in the absence of other taxable income, be below the student’s filing threshold for income tax purposes. Since the parents are entrusting their child with some serious responsibilities, the condorm carries some significant liabilities that may not make it suitable for younger, undergraduate students. Condorms may make better sense for more responsible graduate students.
While these solutions to college sticker shock are a little off the beaten path, they offer enterprising parents and their children an opportunity to use real estate to their advantage. If this appeals to you, you should seek professional tax and legal advice before proceeding.
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Would You Like Help Creating A Plan For Your Child's College Fund Or Your Own Retirement Needs?
We Help Families & Individuals Create Financial Plans For Success.
Mark Kelly, Certified Fee-Only Raleigh Financial Planner™
At University Financial Strategies our mission is to help families think beyond just saving for college, but helping leverage strategies that leverage your unique situation to help you save on college costs. We take into consideration topics like specialized college-planning strategies for business owners, planning for financial aid, school-specific scholarships, coordinating college planning with grandparents, cash-flow strategies and options for covering shortfalls, to name just a few.
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